The Jet Airways insolvency
Jet Airways, once a flagship airline in India, spiralled into insolvency in June 2019 after defaulting on over ₹8,000 crore owed to its creditors, chiefly State Bank of India (SBI). Despite being a major player in the Indian aviation market, Jet faced mounting operational inefficiencies, excessive debt, and stiff competition, leading to its downfall.
In 2021, the Jalan-Kalrock Consortium (JKC), led by UAE-based Murari Lal Jalan and Florian Fritsch of Kalrock Capital Partners, won the bid to revive Jet Airways with a resolution plan worth ₹4,783 crore. Of this amount, ₹475 crore was allocated to settling outstanding debt to creditors. However, the revival plan quickly became mired in an ugly legal dispute between JKC and the lenders.
While JKC claimed ownership of the airline and stated it was doing everything possible to restart operations, the consortium accused the lenders of intentionally stalling efforts and pushing the airline closer to liquidation.
A major stumbling block was JKC’s failure to fulfil key financial obligations outlined in its resolution plan. The consortium was supposed to make an initial payment of ₹350 crore to creditors but only deposited ₹200 crore. They attempted to secure the remaining ₹150 crore with a bank guarantee, which led to a legal battle with the lenders, who insisted on cash payments and rejected the guarantee. This disagreement created delays and complications in the resolution process.
JKC also struggled to overcome significant operational and regulatory hurdles in reviving Jet Airways. These included securing critical airport slots, obtaining an air operator certificate from the Directorate General of Civil Aviation, securing the home ministry’s approval, and renewing bilateral rights for international routes.
Furthermore, JKC had to pay over ₹200 crore in worker dues and clear mounting airport charges, all of which were mishandled, further delaying the revival process.
Also read | Jet Airways liquidation: A wake-up call for India’s insolvency code
The non-compliance with the conditions of the resolution plan ultimately became grounds for the Supreme Court to intervene. On 7 November, using its special powers under Article 142 of the Indian Constitution, the court ordered the liquidation of Jet Airways.
According to insiders involved in the Jet Airways insolvency, the resolution was further complicated by the consortium’s lack of expertise in aviation. Despite promising to infuse enough funds to revive the airline, JKC lacked the operational know-how to manage an airline of Jet Airways’ scale, according to industry experts.
As Captain P.P. Singh, a former accountable manager at Jet Airways, explained, “They bid for the airline without understanding the intricacies of the business… they didn’t stand a chance.”
The consortium’s lack of aviation expertise became evident early on, as it failed to address the regulatory and operational challenges, which proved insurmountable. Moreover, 11 grounded aircraft that could have been sold or leased to generate cash were allowed to deteriorate, compounding the airline’s financial woes.
This combination of mismanagement, lack of expertise, and financial missteps ultimately sealed Jet Airways’ fate, preventing any meaningful revival and leading to its eventual liquidation.
This isn’t the first time a successful bidder has failed to implement a resolution plan, as seen in the Amtek Auto insolvency.
“A successful resolution applicant is not just a participant but a key stakeholder responsible for ensuring the timely implementation of resolution plans,” said Palash Taing, manager at Tatva Legal, Hyderabad, adding that the IBC aims to maximize the profits of the bankrupt company.
What went wrong with Go First
Go First (formerly GoAir) filed for voluntary insolvency in May 2023 after it grounded its fleet due to faulty engines from Pratt & Whitney. Unlike Jet Airways, Go First relied heavily on leased aircraft, and when it defaulted on lease payments, lessors moved quickly to repossess their assets.
Within weeks of the insolvency filing, lessors sought to deregister 54 grounded aircraft through writ petitions in the Delhi High Court, complicating the airline’s ability to resume operations.
Although the National Company Law Tribunal allowed Go First to operate the planes temporarily in June 2023, legal battles with lessors in the Delhi High Court soon prevented any meaningful revival.
In October 2023, a government notification exempted aircraft-related transactions from the insolvency moratorium, weakening Go First’s position and making it more difficult for the airline to protect its assets.
Also read | Go First’s foreign funding push to test India’s insolvency framework
By 2024, after a prolonged legal struggle, the Delhi High Court ruled in favour of the lessors, effectively leaving Go First without any operational fleet. This decision deterred potential investors, including SpiceJet’s Ajay Singh and EaseMyTrip’s Nitish Pitti, from pursuing bids for the airline.
Ultimately, Go First was forced to file for liquidation in September. With no assets and no viable path forward, the airline’s creditors are now pursuing a legal case against Pratt & Whitney in Singapore, seeking over $1 billion in damages for the engine issues that led to the grounding of Go First’s fleet.
As it was with Jet Airways, Go First’s resolution process was marred by mismanagement, with lessors even filing contempt proceedings against the airline’s resolution professional, Shaildnea Ajmera, for allegedly damaging the lessors’ grounded planes.
The common factors: mismanagement of key assets
Both Jet Airways and Go First reveal how mismanagement of their key assets—particularly their aircraft—was a core factor in their failed insolvencies.
Jet Airways’ grounded aircraft were allowed to deteriorate, which could have been sold or leased to generate cash. In Go First’s case, the airline’s heavy reliance on leased aircraft meant that once the lessors moved to repossess them, the airline lost most of its operational fleet, leaving it with little to sustain operations or attract potential buyers.
“The success of an insolvency resolution relies heavily on the company’s ability to operate viably or possess assets that can be monetized. When liabilities exceed these resources, recovery becomes extremely challenging,” said Vihang Virkar, partner at DMD Advocates.
Jayesh H., co-founder of Juris Corp, added, “Airline value largely resides in intangibles like landing slots, which the airline doesn’t legally own. Most aircraft are leased, complicating repossession and value recovery.”
Flaws in the IBC framework for aviation
Shryeshth Sharma, partner at SKV Law Offices, explained that both Go First and Jet Airways faced similar issues under the IBC, leading to their liquidation.
The airlines’ reliance on leased assets required strong lessor relationships, but the IBC moratorium delayed repossession and repayment. Lack of interim funding, prolonged insolvency proceedings, and unclear restructuring plans discouraged investors.
Also, the absence of an aviation-specific framework within the IBC led to asset depletion, financial losses, and made revival efforts unfeasible.
Also read | Re-tweak the IBC to better secure aircraft lessor rights
Experts argue that the IBC’s one-size-fits-all approach is ill-suited for service-sector bankruptcies, such as airlines, where operational downtime leads to rapid erosion of goodwill and market position.
Mukesh Chand, senior counsel at Economic Laws Practice, explained, “The IBC is poorly equipped to handle service-sector insolvencies that need quick turnaround times. Delays are particularly damaging in aviation, where goodwill and market position deteriorate rapidly when operations halt.”
Alignment with the Cape Town Convention
A key issue in both the Jet Airways and Go First bankruptcy cases has been India’s partial alignment with the Cape Town Convention, an international treaty that protects lessors’ rights during insolvency. While India ratified the treaty, it has not fully incorporated its provisions into domestic law, leaving lessors with limited protection. This was particularly problematic for Go First, where foreign lessors faced significant challenges in repossessing their aircraft.
The Cape Town Convention, signed in November 2001, aimed at standardising transactions involving movable property, including contract registration, sales and leases, financial defaults, repossession, and bankruptcies.
Aircraft equipment, including aircraft and aircraft engines, is one of the treaty’s four protocols and came into force in 2006.
Also read | How voluntary group insolvency can smoothen IBC proceedings
The IBC lacks provisions for aviation-specific asset security interests or the protections for lessors provided by the Cape Town Convention, explained Virkar of DMD Advocates. During airline insolvencies, the IBC imposes a moratorium that temporarily blocks asset repossession, including leased aircraft. This directly opposes lessors’ rights under the Cape Town Convention, leading to legal and financial uncertainties.
“Full alignment with the Cape Town Convention is necessary to provide clear and effective repossession rights, mitigating many of the issues currently faced by lessors in India,” Virkar emphasized.
What needs to change
Legal experts recommend several reforms to improve India’s insolvency framework for the aviation sector.
Key suggestions include:
- Amending the IBC to prioritize lessors and operational creditors in line with the Cape Town Convention,
- Introducing provisions for debtor-in-possession financing and temporary asset retention to ensure operational continuity, and
- Enforcing stricter IBC timelines to expedite proceedings.
Additionally, experts call for fully aligning Indian fiscal and tax laws with the Cape Town Convention to protect lessors’ repossession rights and clarify GST treatment on repossessed aircraft.
Also read | A three-point action plan for higher debt recoveries under the IBC
